Tech Start-Ups Choose to Stay Private in I.P.O. Standoff

By Leslie Picker

April 1, 2016

Over the last several decades, there were two distinctly dark periods for American technology companies – the bursting of the dot-com bubble in 2000 and the 2008 financial crisis. In those periods, investors had such distaste for risk that technology companies shied away from initial public offerings of stock.

Now, for only the fourth time since data the early 90s, there have been no tech company I.P.O.s in a quarter.

In the first three months of 2016, not a single technology company went public, according to data compiled by Dealogic. Since 1993, when the firm started collecting data, tech intial offerings have been absent from only three quarters: the third quarter of 2002, the first quarter of 2003 and the first quarter of 2009.

For I.P.O. watchers, the lack of deals in those three quarters made sense. They were periods of crisis, when stock markets were trading at record lows. (initial public offerings are often correlated to the broader equity markets, where higher valuations give the buyers and sellers of new issues incentives to participate).

The first quarter of 2016, however, did not follow any sort of bubble bursting or market correction. In fact, the broader equity gauges are trading just shy of their nominal record highs (not adjusted for inflation). It is a dynamic that has left some scratching their heads.

“I’m a little perplexed as to why this drought is continuing as it is,” said Jay R. Ritter, a professor at the University of Florida, who has studied public offerings for decades. “That total lack of activity, I’m surprised by it.”

Although not necessarily earth-shattering, several trends spooked I.P.O. buyers this time around. Only a third of the tech companies that went public last year are in the green today, meaning that many initial offering investors are already feeling some pain in their portfolios and are unwilling to take on new risk. They were also grappling with a bout of stock price swings in the first six weeks of the year, which makes valuing initial offerings almost impossible.

“Volatility has bred more practical thinking, especially on the shareholders’ side,” said Atish Davda, the chief executive of EquityZen, a marketplace for pre-I.P.O. companies.

There is certainly no shortage of tech companies waiting in the wings. According to the data firm CB Insights’ latest tally, 156 venture-backed companies are valued at more than $1 billion privately.

Traditionally, that is the size at which private companies contemplate a public stock offering, but many of those companies want valuations that no I.P.O. investor would swallow. So rather than taking a cut in price, they have decided to hibernate under the auspices of the private market, where some have still been able to raise more cash.

“Some of the companies were anchoring on the valuations that they had gotten last June, when things were kind of at the peak,” Professor Ritter said. “A lot of them don’t really want to face up to the fact that both the private market and the public market isn’t willing to pay as frothy a valuation as was the case nine months ago.”

At this point, it is unclear who will budge first in this I.P.O. standoff.

A version of this article appears in print on , Section B, Page 2 of the New York edition with the headline: Business Briefing; Tech Start-Ups Stay Private in I.P.O. Standoff. Order Reprints | Today’s Paper | Subscribe